Week ahead: Inflation report dominates financial week

The Bank of England will reveal its hopes and fears for the UK economy in its latest inflation report, while Mothercare’s half-year results will underline the problems hounding the high street this week.

The Bank of England will reveal its hopes and fears for the UK economy in its latest inflation report, while Mothercare’s half-year results will underline the problems hounding the high street this week.

The Bank of England will reveal how likely a double-dip recession is in the UK when it publishes its quarterly inflation report on Wednesday.

The Bank’s Monetary Policy Committee (MPC) is expected to slash its forecasts for growth and inflation as a raft of key indicators all point towards the economy heading into reverse.

The economic outlook has been blackened by weak manufacturing, trade and services data, while the problems in the eurozone have taken a dramatic turn for the worse in recent weeks.

The Bank said the eurozone debt crisis was a key threat to the UK when it unleashed an additional £50 billion in emergency support in October in a clear sign the recovery was heading towards the rocks.

In its last quarterly report in August, it forecast gross domestic product (GDP) to grow by around 1.5 per cent this year and 2.2 per cent in 2012. The report said inflation would fall back to around 1.7 per cent in mid-2013.

Alan Clarke, UK economist at Scotia Capital, said the Bank is likely to revise its growth forecasts sharply lower - but will remain slightly more optimistic than the City’s consensus 0.9 per cent growth for 2011 and 1.3 per cent for next year.

He said: “The Bank will probably blame the downgrading of its growth outlook on the deterioration in the international economy - not least the eurozone - and its impact on financial markets.”

The weaker growth outlook is likely to push down the inflation projection - but this will be slightly offset by the impact of the second round of quantitative easing.

Mr Clarke said as a result he did not expect the Bank’s inflation expectations for the medium term, that is around November 2013, to be greatly changed.

He said: “The thrust of the November inflation report is likely to be dovish. This will justify the October decision to embark on a second phase of quantitative easing.”

Most economists expect further QE in the first and second quarter of next year, with some forecasting the level of asset purchases to increase from £275 billion to £400 billion.

Elsewhere, Philip Shaw, chief economist at Investec, has forecast that the consumer prices index rate of inflation for October, revealed on Tuesday, will come in at 5.1 per cent, down slightly from 5.2 per cent in September.

Mothercare’s future in the UK will be at the heart of its half-year results on Thursday, when it is expected to unveil a slide in profits.

The retailer, which has 353 UK stores and 969 overseas, recently issued a profits warning after it said UK like-for-like sales slumped 9.6 per cent in the 12 weeks to October 1.

The mothers-to-be, babies and children’s business has been kept afloat by its international arm, which saw retail sales increase 16 per cent in the first-half and is on track to expand by 150 new stores this year.

But the problems at the loss-making UK arm have seen the chain’s share price collapse more than 70 per cent since the start of the year, prompting its boss Ben Gordon to step down after nine years with the group.

While Mothercare has already unveiled plans to close 110 stores in the UK, Ben Hunt, analyst at Oriel Securities, said the company should consider winding down the UK arm completely.

He said: “Closing the UK business may seem like a radical idea, but people clearly fear the loss-making UK business will continue to be a burden on the company.”

Mr Hunt said if the business did not completely withdraw from the UK, it could still “downsize significantly”.

The market will be looking for an update on progress with Mothercare’s overhaul of its UK retail estate, which as well as store closures will see a shift in focus to out-of-town Parenting Centres, which contain its Early Learning Centre brand.

City forecasts expect Mothercare to report an 80 per cent decline in pre-tax profits to £5.3 million in the year to March.

Troubled UBS is expected to unveil further job losses at an investors day on Thursday as part of an ongoing drive to cut costs amid increasing global recession fears.

A Swiss newspaper Tages-Anzeiger last week claimed UBS could unveil an additional 1,500 lay-offs, after announcing 3,500 job cuts in August, as its investment bank arm suffers from market turbulence.

Interim boss Sergio Ermotti could be unveiled as permanent chief executive at the bank, which employs 6,000 UK staff, following Oswald Gruebel’s resignation in the wake of a rogue trading scandal.

The Zurich-based bank will move to reassure investors its business is on track at the New York event after it admitted financial controls were “not effective” when the unauthorised trading took place.

UBS said an investigation had discovered that monitoring controls, designed to ensure trading activity was valid and recorded, were not in place on December 31 last year.

Former UBS trader Adoboli, 31, was last month charged with committing false accounting between October 2008 and September this year and fraud between May and September this year. He has yet to enter a plea against the charges.

Telecoms firm TalkTalk is set to reveal on Tuesday that it lost more broadband users in recent months despite its efforts to sort out its customer service problems.

Broadband customers have been leaving as a result of disruption from the transfer of former Tiscali subscribers onto its own network and billing system, as well as strong competition from rivals such as BT.

Although the technical issues seem to have been ironed out, customer numbers are still expected to fall in the three months to the end of September, although at a slower rate than the 27,000 decline in the previous quarter.

This is despite cutting the price of two of its combined phone and broadband packages to woo new customers.

Analysts predict profits will rise 30 per cent to £91 million in the six months to the end of September, despite revenues falling 4 per cent to £848 million.

Profits are expected to have grown as it shifts more of its customers onto its own network, which provides higher margins, and as average revenues per user increase.

TalkTalk’s customer service has suffered since it bought Tiscali’s UK arm in 2009. Earlier this year it revealed it had paid £2.5 million in compensation to customers who received bills despite cancelling the service.

TalkTalk, which was spun off from Carphone Warehouse last year, has previously said it expects broadband customer numbers to return to growth in the second half of its financial year to March. Analysts will be looking for any update on whether it is on track to meet this target.

The firm has also been cutting costs and announced it would axe around 580 jobs, mainly in administration functions, such as human resources, IT and finance earlier this year.

The job losses, across London, Warrington, Irlam in south Manchester, and Preston, accounted for almost 13 per cent of TalkTalk’s UK workforce, bringing it to under 4,000.

Fashion house Burberry is set to report a leap in profits on Tuesday but analysts will be watching for any signs its stellar growth is starting to slow.

The fashion house, which is famous for its red, black and camel check, is expected to report a 25% rise in underlying profits to £160.8 million in the six months to September 30.

It has benefited from the rapid expansion of the middle classes in emerging markets and continued strong demand for luxury goods in the UK and US.

The company has already said bumper sales through its Chinese outlets and flagship stores in London, Paris and New York helped revenues jump 30 per cent to £830 million.

Its first-half performance was buoyed by strong demand for outerwear, including its London trench coat range, shoes, childrenswear and menswear especially in the United States and emerging markets.

But any comments about recent trading will be scrutinised for signs as to whether the slowdown in global growth has impacted its performance, particularly in China.

Burberry has thrived since the onset of the recession as the top end of the market has proved relatively resilient. It has also tapped into overseas demand for UK fashion.

However, its shares have fallen from their peaks in recent months amid fears that the global economy is grinding to a halt.

And concerns about whether its growth can be sustained rose when Burberry’s retail sales slowed slightly in the second quarter of its financial year.

Budget airline easyJet will cheer the market on Tuesday with a surge in full-year profits as its strategy of boosting its appeal to business and short-break passengers starts to pay off.

The airline expects full-year pre-tax profits of between £240 million and £250 million in the year to September 30, compared to £188 million last year. This would be a 27 per cent increase at the low end.

EasyJet has seen strong demand on city routes used by business and short-break leisure travellers. pushing revenues per seat higher in the second half.

The airline launched a new flexible fare in the period targeted at business travellers that gives passengers the option of changing their flight up to two hours before the scheduled departure time.

The carrier boosted the number of city routes on offer to decrease its dependence on seasonal tourism, which has been hit by the consumer spending squeeze.

Elsewhere, the ongoing feud between the board and EasyJet founder Sir Stelios Haji-Ioannou, whose family controls around 38 per cent of the shares, is not expected to die down and still troubles investors.

The company thought it could have seen an end to the dispute after it promised £190 million in dividends to investors, landing Sir Stelios and his family around £70 million.

But the founder’s grievances continued and Sir Stelios has since written to easyJet to announce plans to launch a potential rival called Fastjet.

Wyn Ellis, an analyst at Numis who has forecast pre-tax profits of £246.8 million, said: “Sir Stelios’ continued dissatisfaction with the strategy of the company and the apparent continued tension between the executive board and Sir Stelios remains a major concern to us.”